FCC chair Ajit Pai said he has issues with the proposed Sinclair-Tribune merger, raising a big cloud over the deal.
“Based on a thorough review of the record, I have serious concerns about the Sinclair-Tribune transaction. The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law," he said in a statement. "When the FCC confronts disputed issues like these, the Communications Act does not allow it to approve a transaction. Instead, the law requires the FCC to designate the transaction for a hearing in order to get to the bottom of those disputed issues. For these reasons, I have shared with my colleagues a draft order that would designate issues involving certain proposed divestitures for a hearing in front of an administrative law judge.”
Designating a deal for a hearing has been the death knell in the past.
Pai has been accused by Democrats of favoring the deal, but that was clearly not his message Monday in a highly unusual move for a Republican deregulatory chairman.
Pai will almost certainly have the vote of Democrat Jessica Rosenworcel, though it is unclear how the other two Republicans would vote. The FCC needs three votes to designate it for hearing, but also to approve it, so the move is obviously a big blow to Sinclair's chances.
Sinclair has been criticized for sidecar deals with spin-off stations that would allow it to keep its hand in, and for the relationship to some of the potential new station owners with existing Sinclair officials.
"The proposed divestitures, which are necessary to bring the Sinclair-Tribune transaction into compliance with the commission’s rules, are sham transactions that enable Sinclair to retain control over the divested assets, albeit under the guise of control by a third party," deal critic Newsmax said last week in pushing back on the deal. "This is most evident regarding the divestiture to Cunningham Broadcasting Group (“Cunningham”) and WGN-TV LLC, both of which have close connections to the controlling shareholders of Sinclair and both of which are receiving very favorable prices for the assets they hope to acquire."
Turns out Rosenworcel has already approved the proposed move.
“Today’s announcement is welcome," she said in a statement. "As I have noted before, too many of this agency’s media policies have been custom built to support the business plans of Sinclair Broadcasting. With this hearing designation order, the agency will finally take a hard look at its proposed merger with Tribune. This is overdue and favoritism like this needs to end."
The move means that almost certainly the current appeals court decision on the FCC's restoration of the UHF discount, an FCC decision that paved the way for the Sinclair deal, will be issued before that hearing. If the decision reverses the FCC's restoration of the discount, the deal is hobbled no matter what the FCC Administrative Law Judge decision is.
Former FCC official and deal supporter Adonis Hoffman thinks there is still hope.
"This is an invitation to the parties to restructure the divestitures," he said. "If the overall deal is in keeping with the company's long-term interests, which I think it its, they could do that in advance of the hearing, and salvage the deal."